Spotify Shares Sink As Annual Guidance Ends

Joe Roggin‘s podcast controversy had, until the Closing Bell on Wednesday, generated enough negative press to agitate investors in Spotify. On January 27, shares dipped to $171.32, a dip from nearly $235 per share seen on January 11.

While Spotify rebounded to $203.62 on Tuesday, the comeback fizzled. Then came Spotify’s fourth quarter 2021 results, sending SPOT down by more than 21% in early after-market trading on the NYSE.

The selloff was quick, and dramatic.

What’s behind it?

“We are re-aligning our current guidance practice to better reflect how we run the business,” Spotify revealed in a shareholder letter sent immediately after Wednesday’s Closing Bell, sparking the swoon for SPOT.

“Since the vast majority of our initiatives are multi-year in nature and measured as such, we no longer plan to issue annual guidance.”

That’s somewhat startling for an investor, although Spotify explained that it intends to utilize quarterly guidance as “checkpoints” against its progress. It planned to provide additional thoughts and perspective around 2022 expectations on its earnings call.

As for quarterly guidance, Spotify says that going forward it will “simplify” its approach by providing a single estimate for each metric instead of a range of outcomes.

Additionally, Spotify plans to host an investor day later in 2022 to offer “an update on the strength of our platform and our advancement towards our long-term operating goals.”

With reliance on quarterly, rather than annual guidance, some may argue that Spotify’s profit model cannot yield proper long-term visibility. And, that could explain why Spotify was trading at $158 at 4:17pm Eastern after finishing the regular trading session at $192.09.

Based on the prices seen as RBR+TVBR’s 4:30pm Eastern deadline approached, Spotify shares are down $77 in just 22 days.

‘SUBSTANTIAL UNCERTAINTY’ FOR Q1

Another glaring issue for Spotify is its commentary regarding its expectations for Q1 2022 as of today. They are “subject to substantial uncertainty,” the company notes.

Why? “Given the extraordinary operating circumstances we currently face with respect to the impact of COVID-19, there is a greater likelihood of variances with respect to such point estimates than in typical quarters,” Spotify said.

SPOTIFY Q1 2022 OUTLOOK

• Total MAUs: 418 million
• Total Premium Subscribers: 183 million
• Total Revenue: €2.60 billion
  • Assumes approximately 360 bps tailwind to growth Y/Y due to movements in foreign exchange rates
• Gross Margin: 25.0%
• Operating Profit/Loss: €(67) million

That subscriber outlook is weaker than an expected 184 million premium subscribers.

THE CURRENT FINANCIAL PORTRAIT

As shown below, total revenue continues to climb for Spotify, rising 24% year-over-year to €2.69 billion. Gross profit is up 7% year-over-year, to €712 million.

“We ended 2021 with strong Q4 results, led by outperformance in [Monthly Active Users], continued momentum in our subscription business, and meaningful advertising results,” Spotify said as it opened its shareholder letter. “Looking back on not just this quarter, but the past few years, we are increasingly excited about the investments we have made and see meaningful progress within a number of our initiatives. As we move into 2022 and beyond, the opportunities in front of us are large and we see a tremendous amount of greenfield on the horizon.”

MAUs grew 18% year-over-year to 406 million in Q4, placing near the top end of Spotify’s guidance range.

Premium Subscribers grew 16% from Q4 2020, to 180 million. Meanwhile, Ad-Supported Revenue reached a record 15% of total revenue in Q4 2021.

With podcasts — and Roggin, who has made controversial comments regarding COVID-19 vaccination — at Spotify getting much press attention, Spotify noted that at the end of Q4, it had 3.6 million podcasts on the platform.

That’s up from 3.2 million at the end of Q3.

It did not mention Roggin, perhaps the most successful podcaster in history.